Most homebuilders nationally say a "severe" lack of credit for housing production is threatening the new housing recovery before it has time to take hold, according to a new survey conducted by the National Association of Home Builders.
In the latest survey of acquisition, development and construction financing conditions, 63 percent of builders stated the availability of credit for single-family construction loans worsened in the second quarter. In addition, builders are reporting intensifying pressure on borrowers with outstanding loans.
The association's member builders will construct about 80 percent of the new housing units projected for this year.
"We're seeing some signs of recovery, but you still have an environment in the lending area where institutions, for a variety of reasons, are reluctant or unwilling to extend credit even for viable projects," said David Ledford, the association's vice president for housing finance and land development.
"We don't expect them to extend credit for projects that aren't viable ... but it's very difficult to get financing even when you have certified demand for the homes."
Among the responses, 80 percent of builders said lenders are lowering the allowable loan-to-value ratio, while 76 percent reported that lenders are not making new loans. Also, 75 percent stated that lenders are reducing the amount they are willing to lend, and 62 percent said that lenders are requiring personal guarantees or collateral not related to the project.
Two-thirds of respondents reported putting single-family construction projects on hold until the financing climate gets better.
"Federal regulators have been making statements over the past year that they want a situation where banks are meeting credit needs in their communities ... and the examiners are doing quite the opposite in the field," Ledford said. "They're being ultra-conservative and careful, and making the most adverse assumptions, even when they're not justified, out of the belief that they have less to lose if they're overly stringent than if they're somewhat flexible."
Andy Warren, president of Scottsdale-based Maracay Homes, said his company isn't affected by the credit tightening because its parent company is Weyerhaeuser Co., one of the world's largest forest products producers. The lack of credit is more critical for smaller, private builders, he said.
"I joined Maracay Homes in May and prior to that I was in the Washington, D.C.-area with a smaller, private firm, and those are the kinds of firms that would be very much affected by the situation with this pullback of financing credit for housing," he said. "If you are a smaller builder and you are trying to bring a project to the market, you would be at a disadvantage trying to acquire property right now, compared to a large, national builder. Even if you did own the land and you were trying to get project financing for development of the property or for the construction, you might not have the ability to have that financing, so you can't move forward with the project."
While federal banking regulators continue to maintain that they are not instructing institutions to stop making loans or to "indiscriminately" liquidate outstanding loans, builders responding to the survey said the top reason that lenders have given them for restricting the availability of new loans or for tightening the terms of outstanding loans is "regulators are forcing lenders to do it," Ledford said.
"There's a whole other wave of problems still out there from commercial real estate that regulators and examiners and banks are worried about," he said. "The residential side is going to be impacted by the attempts to deal with that problem because ... everything will be painted with the same brush, that all real estate is still troubled. It's going to just delay and defer the recovery unnecessarily."